The intense demand for vacation homes is a symbol of the ongoing uneven economic recovery in the U.S., with some Americans able to afford second homes and many unable to afford even one.
The number of buyers who locked in mortgage rates for second homes shot up a record 128% year over year in March. That marks the 10th straight month of 80%-plus annual growth. The year-over-year increase should be taken in context because demand for second homes was relatively weak in March 2020, when the coronavirus pandemic first hit the U.S. and real estate activity in many parts of the country temporarily halted with lockdowns.
Pandemic-driven demand for second homes is soaring as many affluent remote workers opt to spend at least part of their time in vacation destinations, even as some companies are planning for workers to return to the office.
The annual rise in demand for second homes is nearly quadruple the 34% year-over-year gain for primary homes.
The data in this report is based on a Redfin analysis of mortgage-rate lock data from real estate analytics firm Optimal Blue. A mortgage-rate lock is an agreement between a homebuyer and a lender that allows the homebuyer to lock in an interest rate on a mortgage for a certain period of time, offering protection against future interest-rate hikes. Homebuyers must specify whether they are applying to secure a mortgage rate for a primary home, a second home or an investment property. Roughly 80% of mortgage-rate locks result in actual home purchases.
“The Palm Springs housing market is incredibly busy, with an influx of vacation-home buyers from Los Angeles and San Francisco,” said local Redfin agent Nisa Sheikh. “Many of them are tech workers who can do their jobs remotely, and they enjoy the weather and lifestyle here in the desert. People don’t want to vacation in a hotel room right now, and many of my buyers are planning to turn their second homes into Airbnb rentals and earn some extra income when they’re not in town.”
“Out-of-towners tend to have more money than locals, and they’re pushing up prices for everyone,” Sheikh continued. “Long term, out-of-towners may push up prices to the point where many locals will need to rent because they won’t be able to afford a home.”
The surging interest in vacation homes is indicative of the uneven financial recovery taking place throughout the U.S. Wealthy Americans are likely to have held onto their jobs—many with the freedom to work remotely—and they’re earning money through a robust stock market and rising real-estate values. But people in lower income brackets are more likely to work in industries like restaurants, retail and hospitality that are still far from recovered.
“This recession has driven wealthy and low-income Americans further and further apart, and the soaring demand for vacation homes during the pandemic is a perfect example of their unequal financial footing, with some people buying second homes and others unable to buy their first,” said Redfin Chief Economist Daryl Fairweather. “Home prices just keep going up. That’s a good thing for Americans who already own one home because they can take advantage of their increased equity to buy other assets, which in some cases includes another home. But it’s bad for lower- and middle-class families, particularly those who are renters, because the barrier to homeownership is getting higher and higher.”
Home prices in seasonal towns are up 19% year over year
Home prices in seasonal towns, where second homes are often located, are up more than prices in non-seasonal towns. The median sale price for homes in seasonal towns rose 19% year over year in February—the most recent month for which data is available—to $417,000. That’s the eighth straight month of 10%-plus year-over-year growth.
For homes in non-seasonal towns, the median sale price rose 16% to $370,000. For this analysis, a seasonal town is defined as an area where more than 30% of housing is used for seasonal or recreational purposes.
While home prices are up significantly almost everywhere in the country, the fact that they’re up more in seasonal towns is an indication that out-of-towners and second-home buyers are impacting those markets, pushing prices up for locals.